FB Stock: 4 Things to Watch For in the Facebook Earnings Report

by Tom Taulli | January 28, 2014 11:15 am

FB Stock: 4 Things to Watch For in the Facebook Earnings Report

Facebook (FB[1]) will report its fourth-quarter results after the market closes Wednesday. And it looks like investors are a little timid heading into the Facebook earnings report, as FB stock has been batted down about 7% in the past week.

Of course, that’s following a rip-roaring 90% run for FB stock in the half-year or so before that. Plus, the whole social sector has been cooling off of late — LinkedIn (LNKD[2]) is down about 5% for the past week, while Twitter (TWTR[3]) is off about 4%.

Still, Facebook earnings likely will set the tone for FB stock for at least the coming weeks, and could have an impact on the broader sector as well. So what should you be looking for heading into the fourth-quarter Facebook earnings report? Here’s a checklist:

#1: Facebook Earnings

Well, of course Facebook earnings would be at the forefront.

Wall Street’s expectations for Facebook earnings are fairly lofty. The consensus is for profits to jump by 59% to 27 cents per share and for revenues to spike by 47.6% to $2.34 billion. The general thought is that mobile will continue to help crank up the growth, which is expected to account 55% to 57% of overall ad revenues.

Yet analysts might be too optimistic. As InvestorPlace editor Jeff Reeves has noted in a recent post, it’s probably only going to get tougher for Facebook to keep up its user growth[4]. From Q2 to Q3 of last year, the company added only about 1 million new monthly users in the U.S. and Canada (a fraction of a percent better), while Europe users increased only 1.4%. Says Reeves[5]:

“It’s realistic to think that this quarterly earnings report could mark the first ever quarter-over-quarter decline in either North America or Europe, or maybe both.”

#2: Product Updates

Facebook has been busy lately with new offerings. Some of the notable ones include auto-play video ads, trending topics and hashtags. But analysts will probably want some clues from the FB earnings report about the success of existing products like Graph Search and Home for Google’s (GOOG[6]) Android. Unfortunately, the company has had a tough time getting traction with its products, so this topic could be a letdown.

#3: Mobile Ad Network

A recent blog post hinted that Facebook is thinking of launching a mobile ad network[7] — if so, that would be a game-changer for FB stock. Consider that all of the company’s mobile revenues come from its own apps. But with an ad network, Facebook would certainly capture a much larger share of the mobile opportunity.

The good news is that FB has all the pieces to put a mobile ad network together — that is, a software development kit for mobile apps (via its Parse division), core ad targeting technology (such as with a desktop-based ad network) and Facebook logins for third-party apps.

So expect Wall Street analysts to ask about this on the Facebook earnings call.

#4: Teen Problem

There’s been lots of buzz about Facebook’s demographic problem[8]. After all, there has been a spate of academic studies and research that indicates teens are fleeing Facebook in favor of cooler alternatives like SnapChat, WhatsApp and Line. And Facebook itself is aware — in the Q3 Facebook earnings report, CFO David Ebersman made a quick comment about weakness with teen usage that caught investors off guard and helped fuel the wipeout of about $16 billion in market cap of FB stock.

To deal with the teen issue, the company might tout its Instagram property, which still is a red-hot commodity. It also looks poised to get more aggressive with advertising on this front, which should help bolster FB stock as well.

Tom Taulli runs the InvestorPlace blog IPO Playbook[9]. He is also the author of High-Profit IPO Strategies[10], All About Commodities[11] and All About Short Selling[12]. Follow him on Twitter at @ttaulli[13]. As of this writing, he did not hold a position in any of the aforementioned securities.